5 Questions to Ask Before Investing in Real Estate

23 Jun

If you watch real estate reality shows, you’re probably going to see a lot of glamorous characters decked out in expensive accessories leading the good life. No wonder so many people want to get into the business!

While it’s not quite as chic as these shows make it out to be, real estate does have quite a few perks. If you’re considering getting into this fast-paced industry, here are a few questions you should ask yourself:

1. What can you afford?

Whether you’re renovating, renting or buying a house, it’s no surprise that real estate is expensive. If you are looking to invest in a piece of property, make sure you have enough cash on hand to afford upfront payments and renovation costs. Ultimately, you will need to get your finances in order before making any deals. Don’t EVER fully rely on a bank loan to fund a renovation – banks are making your loan before unforeseen conditions. Yes, they’ll include a contingency; however, it may not be enough and you’re on the hook for additional costs beyond that contingency. Remember, in construction, there’s no halfway – you finish or you lose.

2. What type of property should you buy?

Do you want to buy a single family home? A three-flat? Two-flat? A high-rise condo? The possibilities are endless. You should also consider what neighborhood will go up in value. Many first-time investors will buy a multi-family home and live in one unit and rent out the other units. Researching your options is crucial in deciding what’s best for you and your budget.

3. Do you want to be an active or passive investor?

There are two types of investors in real estate: passive and active. A passive investor simply provides funds for commercial or residential properties, and takes a “hands off” role throughout the project. If you want to be an active investor, you could get into flipping or owning rental properties. This takes a large amount of time and responsibility. It’s important to recognize what type of investor you want to be before you begin your real estate investing adventure so your buying strategy supports the lifestyle that you want to lead.

4. What is your purpose for investing?

There are many reasons people invest in real estate — income, capital gain, or personal use. While most are looking for a source of income, it’s important to understand that you will work hard for your money. Unfortunately, you can’t just pick a piece of property and expect it to be your money tree. Understand what your goals are and have a realistic expectation of whether or not real estate is the way to accomplish those goals.

5. How much time are you willing to set aside for investing?

Yes, it is possible to have a full-time job AND be a real estate investor. It just depends on how much time you are willing to devote to investing. It can be a few minutes each week or a couple hours every day. Sometimes, people become so involved with real estate investing it becomes their full-time job. Overall, you control how much time and effort you want to put into it. It’s important to realize that during the searching and contract process of buying a property, you will be investing at least 20-40 hours of your time.

Even though you probably won’t be making deals on a yacht in St. Barth’s like they do on TV, you will definitely find the results to be rewarding when investing in real estate. If you would like to discuss more, feel free to contact us!